Southwest Airlines co-founder has seen big changes in industry

Herb Kelleher, co-founder, chairman emeritus and former CEO of Southwest Airlines, poses for a portrait last month in his office in Dallas. Most days he still heads to the office.

Herb Kelleher, chairman emeritus of Southwest Airlines, speaks in his Dallas office during an interview last month.

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It's been a decade since Herb Kelleher, now 80, retired as CEO and three years since he stepped down as chairman, but he still shows up at the office most days. He gives advice when the current CEO, Gary Kelly, asks for it.

DALLAS — Herb Kelleher dressed up as Elvis, wore a paper bag over his head on TV, bragged about drinking Wild Turkey and told bawdy stories. Between the legendary bouts of showmanship, he found time to revolutionize the airline industry.

Kelleher was there at the founding of Southwest Airlines, fighting the legal battles to get the airline started. As CEO for two decades, he built an airline that now carries more U.S. passengers than any other. Most U.S. airlines lose money more often than they earn it, but Southwest has always posted an annual profit.

Southwest grew by entering new cities with lower fares, forcing rivals to also cut prices — a phenomenon that government researchers dubbed “The Southwest Effect.” The airline loved to poke fun at other airlines — and still does, skewering them for charging customers to check one or two bags. Southwest and low-cost imitators such as JetBlue now grab nearly one-third of the U.S. air-travel market.

It’s been a decade since Kelleher, now 80, retired as CEO and three years since he stepped down as chairman, but he still shows up at the office most days. He gives advice when the current CEO, Gary Kelly, asks for it.

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Recently, Kelleher sat down in his office for an interview; edited excerpts appear below. Kelleher chain-smoked cigarettes and talked about airline mergers and high fuel prices. He worried whether rising airfares could put travel beyond the reach of many Americans. And with a touch of self-deprecating humor, he wondered whether anyone would remember him in 10 years.

Q: People love to hate airlines. Is it fair?

A: I’ve thought about that a lot. I think flying is kind of an emotional experience…. Flying involves fundraisers for politicians, family birthdays, anniversary celebrations, this vacation I’ve saved up for a year. So I think there’s a lot more anxiety connected with it.

Q: Tell us what you’ve been doing for Southwest since you retired.

A: I basically do things around here that Gary Kelly asks me to do or that some of the other officers consult with me about. In addition, I’ve got 40 years of connections in the airline industry, and I hear from those folks and have to formulate responses. So an awful lot of it is correspondence and telephone calls.

Q: Do you give Gary advice?

A: No, not really, unless he solicits it. … it’s been a very free, open exchange.

Q: Did you talk to him about bag fees? Today it looks like a brilliant decision not to impose those.

A: I did talk to Gary about it on occasion. I thought it was an excellent decision. It was a contrarian decision — it followed my old adage that if it’s common it’s not wisdom, and if it’s wisdom it’s not common. I think that’s one of the best decisions that’s ever been made at Southwest Airlines, and I think the passenger traffic reflects that … it enabled Southwest Airlines to continue to hold the low-cost cachet position. People are really enraged by these bag fees.

Q: You think it’s a mistake for other airlines to charge bag fees even though it’s bringing them hundreds of millions of dollars?

A: When you look at it from the standpoint of where those carriers were and how desperately they needed revenues — and revenues that are not subjected to the 7.5 percent excise tax, by the way — I think it was a legitimate business decision.

Q: What do you think of the AirTran deal? (Southwest bought rival AirTran Airways for $1.4 billion in May.)

A: I was supportive because I think the world has changed. If this were the Southwest Airlines of the 1980s and the 1990s, when we were in a different mode of operation and the economic settings were different, I probably would not have been too enthusiastic about it. But in the new environment of the 2000s, I think that it was a very opportunistic move.

Q: Consolidation makes sense for the industry. What about consumers? Should they be worried about consolidation?

A: There’s been a tremendous amount of consolidation in the airline industry since I started out…. There’s no more Pan Am, there’s no more Eastern, there’s no more Braniff, there’s no more Western. Every time that that has happened, people have voiced concerns about diminishing competition adversely affecting fare levels, and it’s never happened because the airline industry is still competitive compared to other industries.

Q: Could the airlines, even Southwest, make money if oil goes to $120, $130 or $150 a barrel?

A: If it goes that high I think everybody will have problems.

Q: In 2008 you said you were worried that fares could rise and make travel less democratic. Do you still worry about that? Fares rose last year and they’ve gone up even faster this year at Southwest and other airlines.

A: When I started working on Southwest Airlines, I kid you not, only people flying on business and very wealthy people ever flew. And then we went into business and all of a sudden you had these first-time fliers taking to the air. I remember a grandmother wrote a letter, (she) said, ‘I just saw my grandson graduate from San Diego naval training. Without you, I never would have been able to go to that ceremony because I couldn’t have afforded to go.’ So it’s a big thing, not just in business but also in personal lives. I would hate to see that turned around and take a lot of people out of the air.

(But if) you look at the fare structure and say it goes up 16 to 17 percent, that doesn’t mean the average fare has gone up that much. Airlines are holding sales, allocating more discount seats. I would look at it in terms of what is the average fare in the market, which is a combination of all fares divided by the number of passengers flying in a given market. They haven’t gone up as much as would appear to be the case if you just look at those percentages.

Q. How do you want to be remembered?

A. I don’t think you ever get much remembrance.

Q: Do you have any pet peeves about travel?

A: I don’t really have any peeves, and I fly other carriers a good bit. My experience has been good in terms of getting on the airplane expeditiously and getting to my destination as need be, on time, with my bags — which I carry on. (Laughs)

Q: Maybe they see you coming and they say, ‘Oh, here comes Herb Kelleher, we better not lose his bag.’

A: I was thinking it could be the other way around. ‘Here comes Herb Kelleher, let’s poison his food.’